Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323452 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Economic Interaction and Coordination [ISSN:] 1860-7128 [Volume:] 20 [Issue:] 2 [Publisher:] Springer Berlin Heidelberg [Place:] Berlin/Heidelberg [Year:] 2024 [Pages:] 477-518
Publisher: 
Springer Berlin Heidelberg, Berlin/Heidelberg
Abstract: 
Abstract It is a widely observed phenomenon that wealth is distributed significantly more unequally than wages. In this paper we study this phenomenon using a new extension of Pólya’s urn, modelling wealth growth through wages and capital returns. We focus in particular on the role of increasing return rates on capital, which have been identified as a main driver of inequality, and labor share, the second main parameter of our model. We fit the parameters from real-world data in Germany, so that simulation results reproduce the empirical wealth distribution and recent dynamics in Germany quite accurately, and are essentially independent from initial conditions. Our model is simple enough to allow for a detailed mathematical analysis and provides interesting predictions for future developments and on the importance of wages and capital returns for wealth aggregation. We also provide an extensive discussion of the robustness of our results and the plausibility of the main assumptions used in our model, and identify possible policy implications.
Subjects: 
Markov processes
Growth models
Reinforced processes
Wealth dynamics
Pólya urn
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version
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